Cash-value life insurance is a policy that not only pays out a benefit to your beneficiaries upon your death, but also accumulates cash value while you are still alive. This differs from term life insurance, which covers you for a predetermined, set amount of time and has no cash value until you pass. Cash-value life insurance often goes by other names, like whole, variable permanent or universal life insurance. If you are considering a cash-value life insurance policy as an investment/savings account, it is very important to understand the rules for withdrawals before you sign up, since the process can be complicated and come with drawbacks.
Here are some thoughts on whether or not this type of insurance might be an option worth considering for you.
It might be right for you if:
- You are looking for a policy that will cover you for your entire life and not just a set span of time.
- You are not able to qualify for term life insurance because of your age or health conditions.
- You are planning to continue working out of necessity during your retirement years and would like to provide income for those who depend on you, should you pass before them.
- You have a sizeable net worth and are looking for certain estate planning advantages.
- You are looking for a tax-sheltered investment and you have exhausted the other options for achieving this.
- You feel you need a way to have a “forced savings” account and are not able to motivate yourself to create one on your own.
It might be wrong for you if:
- You want lower monthly premiums.
- You want to have control over your money and flexibility in your investment choices.
- You are looking for looking for the higher returns on your personal investment that can come with stocks or mutual funds.
- You want your savings to go to your loved ones when you pass. A cash-value policy only pays the stated value of the policy instead of paying the value plus the value of the contributions that have been made by the policyholder.
- You don’t want to wait ten years or more to get past the break-even point where the value of a cash-value policy starts being worth more than what you have paid in fees.